Geithner's Decision on China

So, the Obama administration is going to toughen up on China, is it? I find this hard to believe. Let’s take a look at the trade picture to figure out the motivations behind this most recent move by the administration. According to the Census Bureau:

Total exports of $153.3 billion and imports of $196.1 billion resulted in a goods and services deficit of $42.8 billion in July, down from $49.8 billion in June, revised.

Also, take into consideration that our trade deficit with China alone decreased only slightly to $25.92 billion in July from $26.15 billion in June. This amounts to basically no change at all. According to the Calculated Risk Blog, there are also some stormy clouds on the trade horizon. This data is from LA Port, which can claim about 40% of the United States’ container port traffic. According to Calculated Risk, loaded inbound traffic increased 24% in August year over year while outbound traffic is down 2.6% over the same time period. Imports have recovered, but exports are still 17% off from two years ago. Exports may have peaked a couple months ago, while imports have continued to rise. This means that the deficit most likely increased in August.

This is the last thing politicians will want to hear heading into the heat of elections. So, with the intervention by Japan yesterday, upcoming elections and the unfortunate current/future state of American exports, it seems like now is the perfect time for Geithner to make a stand. I’ve written about China relations before, and nothing has changed to make me believe Geithner will actually be able to pull off anything more than an empty threat. There are several reasons for this.

Despite the cry of economists across the world (including myself) to garner multilateral support for such a measure, this is still going to be a US versus China issue when Geithner speaks. If China was going to listen to the things we have to say, they would have done so long ago. Mr. Geithner is apparently going to say:

We are concerned, as are many of China’s trading partners, that the pace of appreciation

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